SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended March 31, 2005
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
Commission File No. 0-29092
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
(Exact name of registrant as specified in its charter)
| Delaware | 54-1708481 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 7901 Jones Branch Drive, Suite 900, McLean, VA |
22102 | |
| (Address of principal executive offices) | (Zip Code) | |
(703) 902-2800
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class |
Outstanding as of April 29, 2005 | |
| Common Stock $0.01 par value |
90,096,034 |
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
INDEX TO FORM 10-Q
| Page No. | ||||||
| Part I. |
FINANCIAL INFORMATION |
|||||
| Item 1. |
FINANCIAL STATEMENTS (UNAUDITED) |
|||||
| 1 | ||||||
| 2 | ||||||
| 3 | ||||||
| 4 | ||||||
| 5 | ||||||
| Item 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
22 | ||||
| Item 3. |
41 | |||||
| Item 4. |
42 | |||||
| Part II. |
||||||
| Item 1. |
43 | |||||
| Item 2. |
44 | |||||
| Item 3. |
44 | |||||
| Item 4. |
44 | |||||
| Item 5. |
44 | |||||
| Item 6. |
44 | |||||
| 45 | ||||||
| 46 | ||||||
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| NET REVENUE |
$ | 313,718 | $ | 348,023 | ||||
| OPERATING EXPENSES |
||||||||
| Cost of revenue (exclusive of depreciation included below) |
202,095 | 209,657 | ||||||
| Selling, general and administrative |
105,533 | 94,317 | ||||||
| Depreciation and amortization |
22,963 | 23,507 | ||||||
| Total operating expenses |
330,591 | 327,481 | ||||||
| INCOME (LOSS) FROM OPERATIONS |
(16,873 | ) | 20,542 | |||||
| INTEREST EXPENSE |
(12,442 | ) | (15,079 | ) | ||||
| EQUITY INVESTMENT LOSS |
(281 | ) | (13 | ) | ||||
| LOSS ON EARLY EXTINGUISHMENT OF DEBT |
— | (14,193 | ) | |||||
| INTEREST AND OTHER INCOME |
576 | 749 | ||||||
| FOREIGN CURRENCY TRANSACTION LOSS |
(3,135 | ) | (1,132 | ) | ||||
| LOSS BEFORE INCOME TAXES |
(32,155 | ) | (9,126 | ) | ||||
| INCOME TAX EXPENSE |
(2,472 | ) | (929 | ) | ||||
| NET LOSS |
$ | (34,627 | ) | $ | (10,055 | ) | ||
| BASIC AND DILUTED LOSS PER COMMON SHARE |
$ | (0.38 | ) | $ | (0.11 | ) | ||
| BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING |
90,059 | 88,770 | ||||||
See notes to consolidated condensed financial statements.
1
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)
| March 31, 2005 |
December 31, 2004 |
|||||||
| ASSETS |
||||||||
| CURRENT ASSETS: |
||||||||
| Cash and cash equivalents |
$ | 116,284 | $ | 49,668 | ||||
| Accounts receivable (net of allowance for doubtful accounts receivable of $19,677 and $20,032) |
169,223 | 190,208 | ||||||
| Prepaid expenses and other current assets |
35,459 | 37,465 | ||||||
| Total current assets |
320,966 | 277,341 | ||||||
| RESTRICTED CASH |
13,277 | 16,963 | ||||||
| PROPERTY AND EQUIPMENT—Net |
319,662 | 326,646 | ||||||
| GOODWILL |
83,754 | 83,346 | ||||||
| OTHER INTANGIBLE ASSETS—Net |
22,241 | 27,200 | ||||||
| OTHER ASSETS |
29,347 | 27,104 | ||||||
| TOTAL ASSETS |
$ | 789,247 | $ | 758,600 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT |
||||||||
| CURRENT LIABILITIES: |
||||||||
| Accounts payable |
$ | 110,309 | $ | 125,002 | ||||
| Accrued interconnection costs |
71,915 | 80,048 | ||||||
| Deferred revenue |
29,132 | 35,219 | ||||||
| Accrued expenses and other current liabilities |
35,038 | 32,982 | ||||||
| Accrued income taxes |
20,850 | 19,506 | ||||||
| Accrued interest |
10,527 | 13,808 | ||||||
| Current portion of long-term obligations |
15,350 | 17,122 | ||||||
| Total current liabilities |
293,121 | 323,687 | ||||||
| LONG-TERM OBLIGATIONS |
640,307 | 542,230 | ||||||
| OTHER LIABILITIES |
1,313 | 1,439 | ||||||
| Total liabilities |
934,741 | 867,356 | ||||||
| COMMITMENTS AND CONTINGENCIES |
||||||||
| STOCKHOLDERS’ DEFICIT: |
||||||||
| Preferred stock: Series A and B, $0.01 par value—1,895,050 shares authorized; none issued and outstanding; Series C, $0.01 par value—559,950 shares authorized; none issued and outstanding |
— | — | ||||||
| Common stock, $0.01 par value—150,000,000 shares authorized; 90,081,403 and 90,011,899 shares issued and outstanding |
901 | 900 | ||||||
| Additional paid-in capital |
658,750 | 658,629 | ||||||
| Accumulated deficit |
(730,285 | ) | (695,658 | ) | ||||
| Accumulated other comprehensive loss |
(74,860 | ) | (72,627 | ) | ||||
| Total stockholders’ deficit |
(145,494 | ) | (108,756 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT |
$ | 789,247 | $ | 758,600 | ||||
See notes to consolidated condensed financial statements.
2
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Three Months Ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net loss |
$ | (34,627 | ) | $ | (10,055 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
| Provision for doubtful accounts receivable |
5,986 | 2,825 | ||||||
| Depreciation and amortization |
22,963 | 23,507 | ||||||
| Equity investment loss |
281 | 13 | ||||||
| Loss on early extinguishment of debt |
— | 14,193 | ||||||
| Minority interest share of income |
(123 | ) | (132 | ) | ||||
| Unrealized foreign currency transaction loss on intercompany and foreign debt |
1,433 | 835 | ||||||
| Changes in assets and liabilities, net of acquisitions: |
||||||||
| Decrease in accounts receivable |
12,459 | 1,466 | ||||||
| (Increase) decrease in prepaid expenses and other current assets |
1,360 | (1,461 | ) | |||||
| Decrease in restricted cash |
3,640 | — | ||||||
| (Increase) decrease in other assets |
617 | (1,126 | ) | |||||
| Decrease in accounts payable |
(11,949 | ) | (7,663 | ) | ||||
| Decrease in accrued interconnection costs |
(7,329 | ) | (4,283 | ) | ||||
| Decrease, net, in deferred revenue, accrued expenses, accrued income taxes, other current liabilities and other liabilities |
(1,719 | ) | (2,271 | ) | ||||
| Decrease in accrued interest |
(3,281 | ) | (2,269 | ) | ||||
| Net cash provided by (used in) operating activities |
(10,289 | ) | 13,579 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Purchase of property and equipment |
(14,234 | ) | (9,773 | ) | ||||
| Cash used for business acquisitions, net of cash acquired |
(165 | ) | (17,579 | ) | ||||
| Net cash used in investing activities |
(14,399 | ) | (27,352 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Proceeds from issuance of long-term obligations, net |
97,000 | 233,000 | ||||||
| Purchase of the Company’s debt securities |
— | (192,259 | ) | |||||
| Principal payments on capital leases, vendor financing and other long-term obligations |
(5,310 | ) | (16,196 | ) | ||||
| Proceeds from sale of common stock |
122 | 718 | ||||||
| Net cash provided by financing activities |
91,812 | 25,263 | ||||||
| EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |
(508 | ) | (24 | ) | ||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS |
66,616 | 11,466 | ||||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
49,668 | 64,066 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 116,284 | $ | 75,532 | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION |
||||||||
| Cash paid for interest |
$ | 15,083 | $ | 16,810 | ||||
| Cash paid for taxes |
$ | 1,153 | $ | — | ||||
| Non-cash investing and financing activities: |
||||||||
| Capital lease additions |
$ | 778 | $ | — | ||||
| Leased fiber capacity additions |
$ | — | $ | 2,063 | ||||
| Business acquisition, financed by long-term obligations |
$ | 984 | $ | — | ||||
See notes to consolidated condensed financial statements.
3
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
| Three Months Ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| NET LOSS |
$ | (34,627 | ) | $ | (10,055 | ) | ||
| OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX— |
||||||||
| Foreign currency translation adjustment |
(2,233 | ) | 682 | |||||
| COMPREHENSIVE LOSS |
$ | (36,860 | ) | $ | (9,373 | ) | ||
See notes to consolidated condensed financial statements.
4
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements of Primus Telecommunications Group, Incorporated and subsidiaries (“the Company” or “Primus”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and Securities and Exchange Commission (“SEC”) regulations. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such principles and regulations. In the opinion of management, the financial statements reflect all adjustments (all of which are of a normal and recurring nature), which are necessary to present fairly the financial position, results of operations, cash flows and comprehensive loss for the interim periods. The results for the three months ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.
The financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s most recently filed Form 10-K.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation—The consolidated financial statements include the Company’s accounts, its wholly-owned subsidiaries and all other subsidiaries over which the Company exerts control. The Company owns 51% of the common stock of Matrix Internet, S.A. (“Matrix”) and 51% of CS Communications Systems GmbH and CS Network GmbH (“Citrus”), in all of which the Company has a controlling interest. Additionally, the Company has a controlling interest in Direct Internet Limited (“DIL”), pursuant to a convertible loan which can be converted at any time into equity of DIL in an amount as agreed upon between the Company and DIL and permitted under local law. All intercompany profits, transactions and balances have been eliminated in consolidation. The Company uses the equity method of accounting for its investment in Bekkoame Internet, Inc. (“Bekko”). All other investments in affiliates where the Company does not have significant influence are carried at cost.
Stock-Based Compensation—At March 31, 2005, the Company had three stock-based employee compensation plans. The Company uses the intrinsic value method to account for these plans under the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations. The following table illustrates the effect on net loss and loss per share if the company had applied the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” to stock-based employee compensation.
| For the three months ended March 31, |
||||||||